Nanny/babysitter arrangements - w2? 1099? Nothing?

[dukie41181]

My husband and I have been interviewing people to watch our girls about 18-20 hrs per week. There are 2 people we have currently narrowed it down to - overall this is a very frustrating process as nothing seems a perfect fit! Anyways, one person is asking to be w2'ed and we're leery of having an employee and feeling with everything that comes with that - workmans comp, taxes, etc. for those of you who have a caregiver in home rather than at a daycare center, are you all doing w2s or 1099s or any sort of income documentation for the caregiver? We are new to this and are quite hesitant about this. Also, what are you paying per hour for your nanny? I know it varies by location but we are in MI in an average cost of living area. A babysitter for a night out is usually about $10/hr here (for 2 kids). Thanks a bunch fr all thoughts on this!

[BabyBearsMom]

I don't have a nanny but as a CPA, I can tell you that it isn't really your choice if they are a W-2 employee or a 1099 contractor. It depends on the work. I would recommend that you review this: http://www.irs.gov/publications/p926/ar02.html#d0e175 and decide if your nanny fits into this definition before you proceed.

[dukie41181]

I don't have a nanny but as a CPA, I can tell you that it isn't really your choice if they are a W-2 employee or a 1099 contractor. It depends on the work. I would recommend that you review this: http://www.irs.gov/publications/p926/ar02.html#d0e175 and decide if your nanny fits into this definition before you proceed.

Thanks for the link. So as someone who has an in-home care provider, an I required to issue them a w2 and treat them as an employee?

[BabyBearsMom]

Thanks for the link. So as someone who has an in-home care provider, an I required to issue them a w2 and treat them as an employee?

If it is in your home, generally the answer is yes but there are exceptions. For example if you have a babysitter who sits for you and other people, you could argue that she is not your employee. Typically, a nanny is an employee.

[daisysmom]

We did a w-2. I don't think there is any leeway in the definition honestly- if you are giving the nanny direction over her care of your child, she is an employee. And it is very easy to pass by the dollar limit per quarter. That's the pain about having a nanny is all the taxes and forms, yes unemployment and state forms too.

[dukie41181]

This person would most certainly have the ability to babysit for other people at her own will but I don't know how often she does or will. This is someone we are just meeting. Technically, what is the difference between a nanny and a regular babysitter?

[vonfirmath]

This person would most certainly have the ability to babysit for other people at her own will but I don't know how often she does or will. This is someone we are just meeting. Technically, what is the difference between a nanny and a regular babysitter?

How much you pay them over the course of the year.

If you pay them $1800, then you need to withhold and pay social security and Medicare taxes.

[westwoodmom04]

For tax purposes, it makes no difference how many other people the babysitter works for or what you call her. If you go over the dollar threshold (which you certainly will if you employ someone for 20 hours a week since it is only a couple thousand dollars), you are suppose to report what you pay her and pay the employer share. Many people do not do this, but it is still illegal and they risk paying the tax penalty if caught. It also is unfair to the nanny as she is not paying into social security and therefore will have no benefit when she retires.

[lovin2shop]

W-2, all the way for a typical nanny job.

Many people who skirt the rules get caught later on when the position ends and the employee files for unemployment. Some are smart enough not too (since they likely haven't paid the taxes either), but many still do.

[HannaAddict]

You have to issue a W2 legally, not a 1099 for the job you have described - if you pay over $1,800 a year. We tried to do the paperwork ourselves and total pain, the state unemployment tax deal was worse than federal in paperwork, etc. So, broke down and hired breedlove. They were great, worth every dime. They will talk you through what you need to do, you can give them most info online, and they generate it all and it is correct, professional, etc. It isn't cheap, but the time it saves and keeping you out of trouble are worth it. The big problem with no paying taxes for the nanny are someday if she files for unemployment and lists you as a former employer, or social security (disabled even, not just at retirement age) there is no statute of limitations I believe and they can get additional damages, fines, etc. It isn't pretty. Plenty of people don't do it, but you really can't hire someone who wants to be a legal employee - as required by law, and not run a huge risk. If you really don't want the hassle, I would look into daycare situations or all day preschool. Sorry to be another bearer of news, having a nanny is expensive. Add about 5% to what you want to pay to account for taxes that you as the employer are responsible for (though you get a break on your personal taxes for paying them).

[kijip]

I'd be more leery of breaking the law. The law is pretty clear here. Pay $1800 or more per year to a person to provide domestic services in your home and you are an employer and need to file the forms and pay the taxes accordingly. The IRS does not consider in home childcare and domestic services to meet their definition of an independent contractor. This is also one of the few ways to give up the time limit that the IRS has to audit you. They can go back an unlimited number of years later for fraud. Paying someone under the table or abusing the 1099 form option is considered tax fraud.